Learn from the Past
Overview
Mortgage backed securities (MBS) gained just 5 basis points from last Friday’s close which caused fixed mortgage rates to remain at the same levels as the prior week.
Domestic Flavor
Retail Sales: The September data was much stronger than expected with the headline MOM Retail Sales gaining 1.9% vs. estimates of 0.7%. Ex Autos, Retail Sales gained 1.5% vs. estimates of 0.5%.
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were much worse than expected, 898K vs. estimates of 825K. The more closely watched 4 week moving average increased to 866,250. Continuing Claims fell to only 10.018M vs. estimates of 10.7M however, that number is temporary and will be revised and not trusted. For example, the prior week’s numbers were originally released at 10.976M but have since been revised to 11.183M.
Inflation Nation: The headline Consumer Price Index YOY increased by just 1.4% which matched expectations. The Core (ex Food and Energy) was 1.7% vs. estimates of 1.8%. Home Prices and Used Auto Prices shot up while Rents tanked. The headline Producer Price Index YOY increased by 0.4% which was double the market expectations of 0.2%. The Core (ex Food and Energy) was also a beat, 1.2% vs. estimates of 0.9%. Energy costs were lower but Food Prices spiked.
Manufacturing: September Industrial Production tanked by -0.6% vs. expectations of a gain of 0.5%. Capacity Utilization was 71.5% vs. estimates of 71.9%. The Empire (NY Fed District) Manufacturing Index was lighter than expected but still in positive territory (10.5 vs. estimates of 15.0). The Philly Fed Manufacturing Survey was a blockbuster with a reading of 32.3 vs. estimates of 14.0.
Consumer Sentiment: The Preliminary University of Michigan’s Index was 81.2 vs. estimates of 80.5 and a nice increase from September’s final reading of 80.4.
What’s on the Agenda for this Week?
Overview
This week could see a lot of volatility IF a stimulus deal gets done, but chances remain very low…still it’s a wildcard. There are not any economic releases with the gravitas to impact pricing, so the momentum must come from the “Three Things”.
Three Things
The three areas that have the greatest ability to impact backend pricing this week are: (1) Stimulation Nation, (2) the Talking Fed and (3) Central Bank Palooza.
(1) Stimulation Nation: After weeks of on again-off again talks, House Speaker Pelosi has issued a deadline for Tuesday for there to be an agreement or that no agreement would be able to be completed before the election. Meanwhile, President Trump has tweeted that he is wanting a “really big” stimulus package. However, many in Senate are not in favor of adding a large amount of debt and are in favor of a smaller and more targeted package. If a package does get done, then MBS pricing will get worse; if a package does not get done (which is what most are assuming) then pricng will remain at current trend lines.
(2) The Talking Fed: There is a heavy dose of Fed-Speak as we near their “black out” period leading up to their next FOMC meeting. Here is the schedule:
10/19 Fed Chair Powell, Vice Chair Clarida and NY President Williams
10/20 Vice Chair Quarles
10/21 Brainard, Fed’s Beige Book
10/22 Fed’s Balance Sheet
(3) Central Bank Palooza: The world’s number 2 economy, the People’s Bank of China, will issue their latest Interest Rate Decision and Policy Statement on Tuesday. There will also be key speeches by ECB President Largarde as well as other key global central bank figures.
Treasury Dump
There will be a key 20 year Treasury bond auction on Wednesday to watch.
Taking it to the House
There is a ton of housing-related data this week: NAHB Housing Market Index, Housing Starts and Building Permits, Existing Home Sales. None of it will impact pricing but it is key information.
Market Wrap-up
Domestic Flavor
Taking it to the House: The October NAHB Housing Market Index reach another all-time new record high with a reading of 85. The previous record was 83 which was set in September.
The Talking Fed: Fed Chair Powell spoke, he primarily discussed work on a “digital dollar” and how it can be used to send funds to the “unbankable” and could even be part of the line item pork of the next stimulus bill.
On Deck for Tomorrow: Housing Starts and Building Permits.
Across the Pond:
China: Q3 GDP 2.7% vs. estimates of 3.2%.